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How Does The Super-Deduction Tax Break Work For Plant Machinery & Equipment

At the start of March 2021, the UK Government announced new temporary tax reliefs on certain capital asset investments, from April 2021 to 31 March 2023.

What is the “super-deduction” tax break?

These measures ensure temporary reliefs for expenditure on plant & machinery equipment. In essence, this incentive will cut a company’s tax bill by 25 pence for every pound spent on new equipment over the next two years.

Rishi Sunak stated that this corporation tax relief will bring forward business spending for two years & increase the amount of investment as well.

According to the Office for Budget Responsibility, says it will boost investment by £20bn a year & will be worth £25bn for the two years it is in place.

Up until the end of March 2023, companies will be able to take advantage of a “Super-deduction” that offers allowances of 130% on the majority of new plant & machinery equipment. Under normal circumstances, these would qualify for the 18% main rate writing down allowances.

Not only this, but there is a first-year allowance of around 50% on new plant & machinery investments, which usually qualify for 6% special rate writing down allowances.

What is the aim of the “super-deduction” tax break & when do I need to spend the money?

The Government hopes that this policy will stimulate economic growth post Covid-19 & enable to Government to take advantage of corporate tax profits once the scheme has finished in 2023.

By implementing a limited timeframe, it should help establish immediate investment. The aim is to both encourage spending that may have been delayed, as well as encourage investment opportunities that may never have occurred without this incentive.

With the 130% capital allowance, it may even enable you to look at the advantages of purchasing an additional piece of machinery.

The HM Treasury stated, “As a result, these measures can promote economic growth and counter business cycles. The super-deduction will give companies a strong incentive to make additional investments, and to bring planned investments forward.”

James Smith, UK economist at ING, stated that he felt that this was the “business equivalent of Eat Out to Help Out”, encouraging businesses to spend some of the £252bn in cumulative deposits, built since the start of the Covid Pandemic.

How does the “super-deduction” tax break work?

In the majority of cases, the 130% deduction of expenditure incurred will mean that with a spend of £100,000, the corporation tax deduction will be £130,000.

With the current corporation tax relief at 19%, you will see a £24,700 return on £130,000.
Under normal circumstances, this expenditure would fall within your company’s annual investment allowance & produce relief of only £19,000, so the benefits of investing now are clear.

What equipment can I claim super-deduction against?

As highlighted in the HMRC Factsheet, most tangible capital assets used in the course of a business are considered plant and machinery for the purposes of claiming capital allowances.

The kind of assets that qualify for the super-deduction include:

  • Tractors, lorries, vans
  • Ladders, drills, cranes
  • Compressors

Is the super deduction only for larger companies?

No, small & medium-sized enterprises & businesses (SMEs / SMBs) are encouraged to take advantage of this tax cut also.

The only main exclusion is for partnerships such as accountants, architects, lawyers. As well as sole traders & other organisations/businesses not paying corporation tax.

Can I use the super-deduction to buy used equipment?

No.

Andrew Frost of Genesis Asset Finance, highlights that a major change from the similar “Annual Investment Allowance”, is the fact that used equipment is excluded from the super-deduction tax break.

So what do I do with my current equipment?

Euro Auctions are here to help people buy and sell machinery, hassle-free, quick and easy & we have been doing so for 20 years. Quick, easy and efficient is how Euro Auctions operate.

No matter if you are a large company or a private seller, we can sell your equipment! If you want to take advantage of the tax deduction now Euro Auctions are best placed to sell this equipment.

Euro Auctions can take care of the whole process from transportation through to refurbishment, freeing you to take care of the other aspects of your business.

Your equipment is marketed to and sold to a global audience so Euro Auctions are experts in getting the return you need.

Summary

It certainly seems that now offers a great opportunity for businesses to invest in new plant machinery to secure their future success & will soften the blow of the corporation tax hike in the next few years.

Given the fact that this tax break is only here for a limited time, those looking to invest in plant machinery equipment should start putting the wheels in motion now, to take advantage of this limited tax break.

Although, it is important to consider that if you plan to sell any of this equipment in a couple of years’ time, corporation tax will have gone up to 25%.

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